Smaller Banks Leverage Partners for Big Data Insights

New technology trends are helping smaller banks take advantage of their data with third-party partners.

Smaller banks have a distinct disadvantage compared to their bigger counterparts when it comes to understanding their customers through data and analytics: they simply have fewer resources to do the job. Until recently much of the big data innovation in banking has been coming from larger institutions, but by working with partners smaller institutions are now starting to gain data-based insights on their customers as well.

“The big banks have more investment and time at using data and analytics for customer insights… but the market has a away of creating props for other organizations at a smaller scale. Silicon Valley innovation will help the late-comers catch up to the early movers,” Chandan Sharma, the global managing director of financial services marketing for Verizon Enterprise Solutions.

Sharma says that Verizon has been investing heavily in its cloud offerings to help provide the storage and compute necessary for big data and analytics at lesser cost, and established a relationship licensing cloud model with Oracle. The lower cost could enable more smaller banks to start making use of all of their data, but many banks still harbor doubts about trusting their customers’ data to a cloud provider, Sharma acknowledges.

“Data security is a sensitive topic for financial institutions, and the risk management considerations are something that we have to work with clients on. Banks are more willing to use the cloud for data they are securing from external sources, but not as much with private customer information,” Sharma relates.

Another trend helping smaller banks take make better use of their data is improved data visualization tools that open up data insights to more staff and thereby decrease the reliance on expensive data talent, Rani Goel, the senior director for analytics product marketing in banking and telco industries at SAP. “We’re seeing much more use of data visualization and dashboards that make it easier for banks to pick up on trends more quickly… that will help make data available to many people throughout the organization, instead of making it the privilege of few people with PHD’s,” Goel explains.

One example of a smaller bank leveraging data visualization to better understand its customer data is Cadence Bank, which will be rolling out MoneyDesktop’s Insight and Target solutions in the first half of this year. The solutions will allow the bank to send relevant marketing offers to its customers based on aggregated data from MoneyDesktop’s PFM solution, which the bank is already using.

“The intuitive and easy nature of MoneyDesktop’s tool helps slice and dice the data,” says Rick Claypoole, Cadence Bank’s director of retail product management and marketing. “I like to immerse myself in a problem, and dive in without a real idea of what I’m looking for. So I like their approach to data visualization.”

The Insight and Target solutions will also allow the bank to its customers’ PFM data relating to accounts at other institutions -- an important marketing advantage for Cadence. “We position ourselves for complex relationship clients who probably have multiple bank relationships… We get this PFM data, and then we can become the primary portal provider for the customer. Then the number of touch points and marketing opportunities there are huge,” Claypoole explains.

Without a partner like MoneyDesktop, Claypoole says he would never have access to the level of aggregated data and analytics tools that the bank will have when it launches the solutions.

“I don’t have an analytics department, I probably never will. I have to farm this out. Right now we’re not close to real time [data processing and analytics] but now I will have that with Insight,” he adds. “In the quest for relevance we don’t want to compete on price. We need the next-level thinking that we can get through Insight, and be able to meet the client where they are with relevant content that is timely.”

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

Smaller banks definitely need to rely on third-party vendors to help perform these tasks. As Claypoole notes, most community banks don't have their own analytics department, or the capacity to mine through big data. That's why these partnerships are important.

Wholly agree with Bryan that community financial institutions need third-party help, but those vendors wishing to house sensitive data will need to overcome the challenges of the vendor due diligence process.

Many organizations simply lack the skills to properly evaluate the vendor due diligence documentation. A Type 2 SSAE-16 attestation report can be hundreds of pages long, covering technology processes and controls that are foreign to non-technical personnel and often beyond the understanding of more junior technology staff members.

Ultimately, if the reviewers can't explain their analysis of the vendor's information security controls to technology and regulatory auditors, then they aren't going to take the personal risk by pushing cloud services.

Vendors can improve their chances by including talking points explaining the important findings (or lack thereof) in the SSAE-16 reports. Further, sharing their actual risk assessments and security audits (even if sanitized) would take care of the heavy lifting needed to build confidence in the vendor selection decision.

As Jonathan states, the smaller institutions have limited staff. The more work the vendor does to complete the due diligence process for the community financial institution, the more rapidly they will build case studies that can be referenced by the more conservative banks and credit unions who take their due diligence efforts seriously.

Community banks and other smaller FIs potentially have an advantage because, almost by definition, they tend to be closer to their customers than are very large banks -- they know their customers better and in fact have actually face-to-face relationships with them. Obviously a generalization, but that is what we've been hearing for years. In the wake of the financial crisis many pundits suggested that smaller banks would have an advantage in terms of customer relationships and reputation (remember the movement to urge consumers to close their accounts and open new ones with community banks?). So if they can couple that advantage with modern technology that gives them the analytics and other tools that can provide even greater insight, then well-managed smaller banks should be in a very good position to drive growth and customer retention.

A few years ago, someone from a large bank here in NY showed me a SSAE-16 report. Yikes...at least 100 pages, complicated and to a non-techie or compliance expert, an SSAE-15 report makes little sense.

I know some tech vendors are focused on this issue that you mention Derin and have gone so far as to take on a more consultative role when it comes to the SSAE-16 rules and audits since a lot of smaller banks don't have the resources/staff/expertise to handle it on their own. But that focus is going to have to grow more widespread throughout the industry to gain more confidence from the banks.

Good point, Kathy. While many customers value the digital capabilities of larger banks, a good amount still prefer the personalized, face-to-face communications that smaller community banks offer. Those banks are in a good position to leverage modern technology to improve retention.

This might also spur a (mini) wave of de novo's -- new bank start-ups, where they spot a gap/opportunity in terms of markets, services, customer needs, and then can capitalize on cloud, mobile and other digital technologies (and also NOT have legacy issues). We've seen this with some digital/virtual start-ups (e.g., Simple, which is going to be acquired by BBVA), but I'm thinking "physical" as well.

The guy without legacy systems always has an advantage, but what if you simply get rid of your internal systems?

If you look at the complexity of banking technology, and layer in security, monitoring, auditing, DR, etc. It can be tough for a community bank to hire and retain someone qualified to run IT or afford to own, operate and maintain the infrastructure.

It is not a stretch to say (though many with a direct job in the roles will disagree) that community financial institutions under $500M and potentially up to $1B in assets should not have internal IT departments, but rather utilize a fully outsourced technology model.

There are very good companies out there performing these services now, and I would expect the usage to accelerate as end users get more accustomed to remote support while regulators push for better security and monitoring practices.